In between stimulus checks and a decline in discretionary spending, Americans amassed $2.6 trillion in excess savings as of mid-April, per Moody's Analytics. This, coupled with a hope of “normalization” back to life before the pandemic, economic growth and consumer spending have developed positively.  

Moody's Analytics has also reported that US economy is expected to grow 6.4% in 2021, after shrinking 3.5% in 2020.  This is now becoming visible as the stock markets posted a strong first half, on the backs of a projected GDP and economic growth, driven by vaccination and reopening measures.  The housing market is also following suit, as low mortgage rates and positive consumer sentiment is sparking a heightened interest in home buying.

Danielle Hale, Chief Economist at realtor.com, has written that, “While home prices never declined, they were flat this time last year, which is one of the reasons we’re seeing home prices register such large gains compared to that time. A similar story plays out for new listings. In sum, the housing market remains competitive and while the new listings trend is an optimistic sign for hopeful buyers, they still face a challenging market.” Other key stats from Hale's are:

  • “Median listing prices grew at 18.7 percent over last year, marking 35 consecutive weeks of double-digit price growth.”
  • “New listings–a measure of sellers putting homes up for sale–notched a 36 percent gain compared to this time last year following last week’s 7 percent drop.”
  • “Total active inventory showed a smaller decline for the first time since November 2020, but it remains 53 percent below this time last year. The total number of homes actively available for sale continues to be less than half of what we saw last year, and we’re measuring from somewhat lower early-pandemic levels.”

What has this led to:

  1. Low supply and high demand have created a surge in housing prices. Zillow Home Value Index reports that home prices rose 9.1 percent over  since the genesis of the pandemic and are expected to exceed 10% over the next 12 months.
  2. Lumber prices have skyrocketed, nearly tripling in price since this time last year. Some homebuilders are declining to build until wood prices fall further.
  3. Corporate relocations have also amplified dramatic surges in demand for housing in certain regions and cities (example: Tesla moving to Austin, Texas).

The big question now is, Are we in a housing bubble?

The answer here depends on whose opinion the consumers value and take to heart. Here are a few influencer positions on the bubble:

  • “Absolutely. I think we’re in an omni-bubble. How long does it last? It depends. How long do you keep the faucet open and this money running?” billionaire Jeff Greene said on “Power Lunch.”
  • “I wouldn’t call this a housing bubble because the demand for homes is truly there and the buyers can afford these high prices,” said Redfin Chief Economist Daryl Fairweather. “Bubbles burst; I don’t see that happening.”
  • According to Joseph Edgar, CEO of TenantCloud, “It means the recent sharp price increases aren’t due to low-interest rates or predator mortgage gimmicks such as during the lead-up to the 2008 recession. They are caused by a lack of supply.”

What should consumers do?

With all these varying point of views, smart consumers should do their own research and only after weighing the pros / cons of home ownership, should make the decisions. Each scenario is different and hence does not have a one fit all answer.

Next Read: 5 ways to pay off your mortgage early and financial freedom